News Item

05/29/2019

"Crain's" featured President Marvin Krislov's piece "Opportunity zones should deliver more than profit and tax breaks"

Opportunity zones are a new incentive to direct investment capital into underserved communities that need it. They were created by the federal Tax Cut and Jobs Act of 2017, and 514 census tracts throughout the state have been designated as such by Gov. Andrew Cuomo. All five boroughs of New York City have them, including parts of Chinatown and Harlem and large swaths of the Bronx.

In Queens, waterfront areas such as Long Island City and Astoria are opportunity zones, as are Downtown Brooklyn and parts of South Brooklyn and areas around the ferry terminal and Bayonne Bridge on Staten Island.

Across the country, thousands of communities in or near an opportunity zone could be embarking upon one of the most profound experimental economic programs in generations. Structured correctly, opportunity zone investments can direct billions dollars in private investment toward the kind of new development, skills training and infrastructure upgrades these communities so badly need.

That’s why it’s critical that qualified opportunity funds guiding these investments—the pools of investable money collected and invested in opportunity zone businesses and projects—screen potential projects for their community benefits, not just their potential economic returns.

What might a community benefit screen look like?

Qualified opportunity funds should work with community leaders and longtime community pillars like universities and health centers to connect investors with worthy projects that will yield a positive social impact. They should focus on resource-starved infrastructure projects that benefit local and regional economic ecosystems. And they must avoid projects that increase inequality or drive out longtime residents.

Last summer, for example, the Federal Reserve Bank of New York joined with the U.S. Impact Investing Alliance and the Beeck Center for Social Impact and Innovation to develop a formal framework for evaluating potential investments. The principles they outlined include community engagement, equitable community benefits, transparency and measurement so that progress on objectives can be tracked and improved upon.

We would also add other considerations, focused on outcomes:

* Does an investment help locals? Residents of low-income communities often need affordable housing, good jobs, skills training, access to health care and other social services. This must form the basis of projects selected for investment.

* Does an investment build sustainable and resilient infrastructure? This question is often ignored when the time horizon of a project is long. But because an investor must hold an opportunity zone investment for 10 years to reap the maximum tax benefits, we anticipate a shift to longer-term planning.

* Does an investment build intellectual capital? Our country faces big challenges, from the impacts of climate change to employment in the digital age to income inequality. Low-income communities are in many ways least equipped to confront these changes. The opportunity zone program provides a remarkable chance to invest resources that help residents in these areas gain the expertise to adapt.

Critical moments in American history have called for bold action to solve seemingly intractable problems. Opportunity zones can be the kind of transformative program that changes this country for the better while also benefiting investors. What’s needed is a mechanism to ensure it delivers the intended societal gains alongside financial ones. As funding flows into the zones, investors must implement a framework that achieves both investment security and community growth.

The tax law created powerful incentives for investment in underserved communities. The needs are there. It falls to all of us to make sure they are met.

Marvin Krislov is president of Pace University. Al Puchala is CEO of CapZone Impact Investments, a national platform focused on opportunity zone investments.

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